Use the figure below to answer the following question(s). Figure 15-2
According to the modern expectational Phillips curve illustrated in Figure 15-2, unemployment will temporarily rise above the natural rate of unemployment when
A) inflation turns out to be lower than what people expected.
B) inflation turns out to be higher than what people expected.
C) inflation turns out to be equal to what people expected.
D) all of the above are true.

Question

Use the figure below to answer the following question(s). Figure 15-2
 According to the modern expectational Phillips curve illustrated in Figure 15-2, unemployment will temporarily rise above the natural rate of unemployment when
A) inflation turns out to be lower than what people expected. 
B) inflation turns out to be higher than what people expected. 
C) inflation turns out to be equal to what people expected. 
D) all of the above are true.

Quizplus · Accepted Answer

According to the modern expectational Phillips curve, when inflation turns out to be lower than what people expected, unemployment will temporarily rise above the natural rate of unemployment. This is because firms will cut back on production and lay off workers to adjust to the lower prices, causing unemployment to increase.

Use the Figure Below to Answer the Following Question(s)